Policymakers Vex Buy Side

Terry Flanagan

T Rowe Price cites government failures as contributing to high market volatility and a lack of direction.

With a little more than one month left in 2011, U.S. market indices are little changed for the year. And rather than calm markets through the year, the running-in-place performance has come with pockets of massive volatility that scared away some investors.

Failures of government policymakers in the U.S. and Europe have been a driving force behind the market malaise that has resulted in the average stock investor paying a professional manager to take risks but generate a return no greater than a money-market fund.

Surviving the 300-point daily market swings with no end-of-year return to show for it has resulted in many investors losing conviction in the markets, T. Rowe Price Director of U.S. Equities John Linehan said Tuesday at a press briefing in New York.

Just this week, the so-called “super committee” failed to reach a deal to reduce the U.S. budget deficit, less than four months after legislators’ bitter wrangling over raising the national debt ceiling prompted Standard & Poor’s to downgrade the U.S. credit rating. The almost complete lack of bipartisanship in Washington is almost unprecedented and very troubling, according to T. Rowe Price Chief Investment Officer Brian Rogers.

The ongoing debt crisis in Europe, and leaders’ inability to effectively address the situation so far, shows that government undermining markets is not limited to the U.S.

Scott Berg, portfolio manager of the T. Rowe Price Global Large-Cap Stock Fund, said the political dimension presents a problem when investing in global equities, as it complicates the valuation process. T. Rowe is committed to investing in emerging markets, where valuations and growth rates are attractive even with some government uncertainty, Berg said.


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